Abstract

[From the Introduction]. This paper analyzes the relationship between French and West German national macroeconomic policy patterns and Franco-German economic cooperation in the 1980s. I will argue that in some fundamental respects policy-makers in both countries had identified the same economic weaknesses and socio-economic disequilibria they had to eliminate after the two oil shocks in order to improve employment and growth performances as well as control inflation and achieve balanced external accounts. As a result, governments in France and Germany began to adopt broadly identical policy strategies to bring back high growth and full employment combined with internal and external stability. This identity of diagnoses and general policy patterns was based on the fact that--mutatis mutandis--the principal causes for the persistence of crisis symptoms after the first oil shock were common to both countries: In France and West Germany formerly stable income distribution trends had undergone significant change during the 1970s. High and inflexible real wages and an increasingly expensive welfare state had brought about a squeeze of the capital share in value added and a collapse of business profitability, which, in turn, led to an interruption of the flow of investment, persistent unemployment and inflationary pressures.(1) Thus, policy-makers in both countries were faced with the same broad challenge for the 1980s: to reconcile the financial claims of an expensive welfare state and the demands for steadily rising wages with the viability of an internationally competitive market economy.